One of the first state schools to take on a private partner has had to be "rescued" by the local council after it was deemed inadequate by inspectors.

The move will prove embarrassing for the Conservative party, because Kings International College lies in the constituency being defended by its shadow education minister, Michael Gove, who has been promoting his party's Swedish-style "free schools" policy, which will allow parents, charities and other organisations to set up schools outside local authority control.

Critics said the case in Camberley, Surrey, highlights the problems with the Tory model. "Michael Gove has been talking about what is going on in Sweden; it might be more useful if he looked at what is going on in his own constituency," said David Whitcroft, a local Liberal Democrat councillor.

Although Kings is not a "free school" as such, it has many similarities, particularly the involvement of an outside party, 3Es Enterprises, which held places on the governing body.

Estelle Morris, a former education secretary, said it was a good example of why changing the structure of a school did not solve all its problems. "Sometimes the public sector has to come in and rescue things," she said.

A withering Ofsted report criticised the leadership of the school and the governing body, claiming they had failed to embed aspiration in pupils, drive improvement, promote equality of opportunity or tackle discrimination.

Surrey county council confirmed that the school had been taken back into council control: "Kings International opened in 2001 with 3Es as the partner. In March, Ofsted announced it had failed its inspection, putting the school in special measures. The local education authority successfully applied to the Department for Children, Schools and Families to replace the governing body, which ended the link with 3Es."

The organisation had held a number of seats on the governing body, but its representatives stepped down last month. It will take another four weeks for the link between 3Es and the school to be officially broken, when the council replaces the governing body with an "interim executive board".

The Liberal Democrat candidate in Surrey Heath, Alan Hilliar, said the problems at Kings illustrated the "gulf between the theory and reality of Michael Gove's half-baked education policy. If privatised schools like Kings International are such a great idea, why does Mr Gove refer to Hackney or Sweden rather the school in his own constituency when he cites examples of where his policy is working?"

John Bangs, of the National Union of Teachers, said the 3Es coalition – which involved six schools – was the first example of the "outsourcing" of state education and had encouraged a number of other companies to become interested. He said the model had emerged under Labour, leading to the academies programme.

"It confirms the vacuousness of Gove's argument that somehow the structure of the school and organisation has a relationship to quality," said Bangs, who argued it was strong leadership, motivated and experienced staff and positive relations with the local community that mattered more. He said politicians felt the state did not have a monopoly on the knowledge of how to run schools but argued the state did have an "enormous historical memory" of what works and what does not.

Alasdair Smith, of the Anti Academies Alliance, said the case shone some light on the lack of public accountability in schools not under council control.